U.S. stocks briefly erase all gains after fake AP tweet on Obama

The U.S. stock market plunged in early afternoon trading Tuesday, briefly wiping out a triple-digit advance by the Dow Jones Industrial Average
/quotes/zigman/627449DJIA, after a fake tweet appeared on the Associated Press’s twitter feed describing a terror attack on the White House.

During the momentary plunge, the Dow fell 145 points, turning briefly negative for the day after being up more than 135 points. It quickly rebounded and was lately up 120 points.

Joseph Greco, managing director of Meridian Equity Partners, Inc., said the near instantaneous reaction of the markets was likely driven by computerized trading algorithms which closely monitor news sites and trigger buy and sell orders based on pre-determined rules. “Clearly this should be scrutinized for its unintended consequences is times of market volatility,” Greco said in e-mailed comments.

Social media was also in focus during the Boston Marathon bombings and subsequent manhunt for the perpetrators.

Twitter had no comment on the fake tweet, and the SEC said it had no comment on whether it will review the tweet.

The AP subsequently reported that “hackers compromised Twitter accounts of The Associated Press on Tuesday, sending out a false tweet about an attack at the White House.” The news agency said it had suspended its other Twitter accounts. It said its news wire hadn’t been compromised.

Traders and investors said the market’s swift and severe reaction underlined how influential Twitter has become as a source of information, whether it’s a data set for computerized trading programs or investor sentiment.

“In many respects, Twitter is the latest news wire of Wall Street. Investors have come to rely on the social medium for minute-by-minute news and opinion,” said Jack Ablin, chief investment officer at BMO Private Bank.

And they said–besides finding the culprits–they expected the day’s action could be a wake-up call for regulators to oversee the increasingly close relationship between social media and Wall Street.

“I imagine there will be additional trading safeguards that will need to be enacted, as there were following the insider trading scandals,” said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors.

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